Mark Goldberg


www.mhgoldberg.com





#CTS20

Should CRTC end its parallel tax system?

As Heritage Minister Joly continues to explore a range of options as part of the “Canadian Content in a Digital World Consultation,” we understand that most options are still on the table, but certain schemes – such as a “Netflix tax” – have already been ruled out.

Still, it seems extremely unlikely that there will be a new tax on internet access services, but quite possible to see the federal government apply its Goods and Services Tax (a value added sales tax) on all foreign digital services. This would align with a global trend to uniformly apply taxes on digital services – foreign and domestic. This would bring revenues into the federal finance department and then disbursements would presumably also come from the overall government budget.

The CRTC currently oversees a number of funding programs, on both the telecom and broadcasting side, that operate somewhat independently of the government’s plans and priorities.

For example, there has been an explicit subsidy regime, the National Contribution Fund, that was established to tax telecommunications services and distribute the funds to subsidize local phone service in high cost areas. Last year, the CRTC decided to allocate $5.5M from that fund in order to pay for Video Relay Service.

On the broadcast side, we have a variety of funds that tax revenues from broadcast distributors and subsidize Canadian media development, as well as a form of tax applied on broadcast acquisitions known as Tangible Benefits.

Is the CRTC administration of funding for social priorities an outdated artifact of a long past monopoly era?

When there was just one phone company and one cable company in an area, it didn’t make a difference who collected the tax revenues or who distributed those funds. Adding a few percent to the cost of monopoly communications services was a way for the government to fund related social programs without raising income or sales taxes.

But with so many sources of competition for voice and video communications, the CRTC’s taxation system is not applied uniformly. There are lots of voice services that are exempt from paying into the contribution system; there are lots of video services (such as Netflix and YouTube) that are exempt1 from funding Canadian content creation.

Why aren’t these subsidies being administered by the relevant government departments?

We have recently seen the situation with the launch of Video Relay Services where the Minister of Sport and Persons with Disabilities said:

We believe people with disabilities should be able to fully participate in Canadian life as easily as anyone else. I understand what a difference it makes in a person’s life when they have the tools they need to succeed. So I am very pleased to see the launch of Canada’s Video Relay Service. This is a big step in the right direction.

There is no question that Video Relay Service is an important tool enabling many people to participate more fully in Canadian life, and it is reassuring to see the Minister affirm the Government’s support. That makes me wonder why the funding didn’t come from the Minister’s departmental priorities. Instead, we effectively have an internet app being funded by a tax generated from legacy telecommunications services.

The CRTC funding systems depend on artificially increasing the cost of old world services, creating a further incentive for consumers to migrate to new media and internet-based substitutes that aren’t paying into the tax system. As more users migrate, the funding comes from an ever shrinking pool of people, continuing to increase the per-user charge, further fueling migration.

As the government explores changes to its tax system to deal with digital services, perhaps it is time to end the pseudo-taxes being applied and distributed by the CRTC. Let the relevant Departments and Ministries administer the social subsidies and programs and level the play ground for competing services. And why don’t we leave tax collection to the finance department.


Notes:
1 The Digital Media Exemption Order (DMEO), revised last year, exempts services such as Netflix and YouTube, and hybrid services such as Crave TV and shomi, from most obligations imposed on traditional broadcasting services.

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